Economic zone shows limits of change in North

RAJIN, NORTH KOREA – Many of the ways in which this dusty, windswept area differs from most of North Korea are easiest to see at night.

Although there are traffic lights in other cities, the ones in the Rason Special Economic Zone actually light up. The avenues are broad and paved, and along the main street, colorful, decorative lights outline the edges of buildings. Foreign-owned or -funded industries and businesses including a casino — one of only two in the whole country — have helped create an oasis of light in an otherwise inky black and largely empty countryside.

The zone, some two decades old, is intended to be a petri dish of capitalism, and North Korea’s leaders plan to expand the experiment all over the country. It isn’t the only one of its kind in North Korea, but it’s the oldest, most vibrant and, experts say, the most promising.

Last month, North Korea announced plans to create economic zones in every province. The North also recently laid out new laws to facilitate foreign tourism and investment. The laws provide investors with special incentives and guarantees, while giving local leaders greater autonomy to promote themselves and handle business decisions.

But it’s unclear how far Pyongyang is willing to go. The North has shown no willingness to abandon its nuclear weapons program to get out from under international trade sanctions. And Monday’s announcement that Jang Song Thaek, the country’s No. 2 leader and reportedly a supporter of Chinese-style economic reforms, has been purged for corruption adds uncertainty to its intentions.

A look at Rason suggests that it is not so desperate to revive its moribund economy that it will risk major changes that might jeopardize the political status quo.

Officials allowed to visit the zone but denied access to some areas, including what might be the front line of North Korean grass-roots capitalism: a bustling public bazaar where small-time entrepreneurs rent stalls from the government to hawk their wares in a decidedly free-market style.

In appearance, Rason remains in every way an outpost city — albeit one that is better off than most in the North. Its showcase enterprises — the Sonbong Textile Factory, a seafood processing plant, a sprawling chemical production complex — are hardly cutting-edge or transformative.

In room after room at the textile factory, row upon row of workers, almost all of them women, toil silently at sewing machines below plastic sunflowers and big blue posters that say simply, “Without a Rest.” No words are spoken. Rarely is an eye raised from the task at hand.

This year, the factory will produce 1 million pieces of clothing, twice its output just five years ago, said Pak Mi Kum, who worked for 10 years as a seamstress before becoming manager. Chinese contractors supply the raw materials, then take the finished goods home for sale or export, tagged “Made in China.”

The Rason SEZ combines two small cities, Rajin and Sonbong, just a short hop from the Chinese and Russian borders. It’s been around since the early 1990s, when international relations appeared to be improving slightly, but they have since sputtered over North Korea’s nuclear program.

Rason now hosts 150 foreign companies from 20 countries. Experts say North Korea’s lack of commitment to establishing a legal framework and financial guarantees has discouraged more investment.

Some signs of foreign interest are easy to spot. Along the coast sits the revamped five-star Emperor Hotel and casino, replete with blackjack tables, karaoke and massage rooms. Hong Kong money is behind it, and it is generally populated by Chinese gamblers.

But that isn’t the Rason officials want the world to see. Requests to go inside the Emperor are denied. Instead, they offer a grand, optimistic spiel in the conference room of the Pipa Tourist Hotel. It begins with a short video presentation after Kim Yong Nam, the first vice chairman of the Rason Economic and Trade Zone Administrative Committee, and Kim Hyong Pil, head of the Rason Investment Service Office, take their seats in large armchairs.

“Through Rason port we can reach any port in the world,” Vice Chairman Kim says proudly. “We would like to develop Rason to be like the port of Singapore.”

He points to the completion of a railway linking the zone to the Russian town of Khasan. A new bridge is going up over the border to China at Wonjong. Rason’s port, he continues, can handle 3 million tons of cargo a year, which will go up to 20 million by 2020 and 100 million by 2030. He predicts Rason’s population, now about 200,000, will more than quintuple in 20 years.

Like most of North Korea, Rason has a chronic shortage of energy. But Kim says Chinese electricity and Russian coal should be coming soon.

His sales pitch concludes with what he sees as Rason’s — and North Korea’s — real ace in the hole. Labor is cheap, reliable and literate. Crime is not an issue. Stability? “Ours is the most stable country in the world,” he says.

The success of the plan hinges on China, and there are reasons to believe Beijing wants to help. It has begun an ambitious effort to develop its relatively poor northeastern provinces. Using Rason more could reduce transport costs for exports and consumer goods headed down the Chinese coast. Economic involvement in Rason has the added bonus for China of strengthening its influence over North Korea and — the Chinese hope — improving stability.

The purge of Jang, leader Kim Jong Un’s uncle, could have a chilling effect on the zones, since he had close ties to China and was seen as a moderate who supported the zoning concept. In announcing his removal, the party slammed him for being overly influenced by capitalist ideas and “doing enormous harm to the efforts to build a thriving nation and improve the standard of people’s living.”

Connie Carter, a professor of Law and International Business at Royal Roads University in Victoria, Canada, said that while special economic zones could be “powerful and potentially useful,” North Korea shows no sign of enacting broad reforms. “I’m afraid that rather than being the golden goose, in its current form, the DPRK’s special economic zone idea might turn out to be a dead duck,” she said.Mitsuhiro Mimura, of the Economic Research Institute of Northeast Asia, said the zones proposal reflects Pyongyang’s desire to appear in control of changes that are already well under way. He said the North’s leaders know they must improve quality of life and the efficiency of their centralized, command economy, but also fear that the creation of more wealth and a middle class could spawn demands for freedom.

“It’s a very dangerous gamble for the leadership,” he said. “They need to figure out how to hit the brakes if they need to. How will they lead if the market system succeeds?”